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Reward system in The Royal Bank of Canada

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Motivation is a complex combination of perceptions, aspirations and environmental interactions off all which affect behavior. Go et al (1996) describe motivation as willingness to exert high levels of effort towards organizational goals, conditioned by the efforts to satisfy some individual need. This is echoed by Mullins (1998) stating that motivation is linked to the attempt of individual to achieve certain goals which are related to the opportunity of satisfying a particular need. Mullins (1998) does emphasize that motivation is a complicated issue though and that people tend to be motivated by a variety of factors. These can be arranged into three groups: Economic rewards including pay, benefits and job security; intrinsic satisfaction including nature of work, achievement and personal development and Social relations including the work environment, colleagues and feelings of belonging.

Motivated employees are an essential attribute of any successful organization. Management’s job is to create the context within which employees will strive to contribute to the goals of the organization. In other words, by influencing the context, and hiring the right employees, managers can affect the degree to which employees feel motivated to ‘do the best possible job or to exert the maximum effort to perform assigned tasks’ (Gomez-Mejia et. al., 1997).

The motivations for workplace behavior can be generally explained be theories that range from needs based theories (Maslow, 1954) to driver based theories, which account for the influence of affiliation, power, and achievement (McClelland, 1961). The interplay of intrinsic and extrinsic factors in a person’s environment is also prevalent in explanations (Herzberg, 1968). However, while research on motivation suggests that factors impelling workplace behavior are functions of a worker’s environment and personal life, in cross-cultural settings unique cultural variables also affect the attitudes and behavior of people (Adler, 2002; Deresky, 2000). In this paper we will analyze the Reward practices undertaken in the Royal Bank of Scotland Group. After analysis some useful recommendations are also presented for the betterment of the reward system in the company.

Introduction of the Royal Bank of Canada

            “The Royal Bank of Canada, is Canada’s largest chartered bank. It has over 1,300 branches across Canada, over 60,000 employees worldwide, and offices in over 30 countries.

Its primary marketing name is now RBC and that name is used on all its business units, which are collectively known as RBC Financial Group. Examples include RBC’s capital market operations RBC Capital Markets; full service investment brokerage firm RBC Dominion Securities, and online investment site RBC Direct Investing. RBC also has a large retail banking presence in the southeastern United States, marketing itself there as RBC Centura.

RBC is incorporated in Montreal, and its headquarters are in downtown Toronto at the Royal Bank Plaza. RBC ranks number 83 on the Forbes Global 2000 list (2005 edition). Its market cap fluctuates at around CAD$60-65 billion as of August 2006.” (Wikipedia, 2006)

Organizational structure and business overview:
The Group’s activities are organized in the following business divisions: Corporate Banking and Financial Markets, Retail Banking, Retail Direct, Manufacturing, Wealth Management, Direct Line Group, Ulster Bank, Citizens and the Center.” (RBFG Reports and Accounts, 2002)

Iain Middleton, decision support manager in the Human Resources division of The Royal Bank of Canada, provides essential management information to support the Group’s overall HR strategies, and to enable day-to-day HR management by business-facing teams in 10 divisions and hundreds of business areas. “We also use other external systems for areas like pensions and managing our employee rewards packages,” he says.”

 Reward system

According to Armstrong (2000), an employee reward system consists of organizations integrated policies, processed and practices for rewarding its employees in accordance with their contribution, skill and competence and their market worth. It is taking action to satisfy needs. It is a positive incentive and reinforces good behavior. People can also be motivated by rewards and incentives, which will enable them to satisfy their needs or will provide them with goals to attain. Reward system is concerned with both financial and non-financial rewards.

Financial Reward:

Financial reward involves the level of salary, allowances and benefits. There is no doubt that we live in a money-motivated world. Money is the most important motivator in financial reward.

Armstrong and Murlis (1998) said money is important to people because it is instrumental in satisfying a number of their most pressing needs. It is signification not only because of what they can buy with it but also as a highly tangible method of recognizing their worth, thus improving their self-esteem and gaining the esteem of others.

Non-financial rewards:

Non-financial reward can be focused on achievement, recognition, responsibility, influence and personal growth. Recognition is also an important through job promotion, allocation to a high-profile project, enlargement of the job to provide scope for more interesting and rewarding work, and various forms of status or esteem symbols.

Reward system in Royal Bank Financial Group:

All the stakeholders have found the results of the performance analysis of Royal Bank of Canada (RBC) really impressive. Value Based Management (VBM) is the instrument, which is used at all levels of RBC staff to make decisions and take actions that will deliver superior performance. The bank is acquiring high level of profits since the last decade through the use of innovative human resource management techniques.

The steps taken for the performance betterment are not restricted to the financial measures. The Company undertakes the holistic approach towards the management of its employees. The Company puts great emphasis on the alignment of strategy and operational analysis and planning methodologies in an integrated manner.

The company has kept on adopting innovative techniques in order to effectively undertake planning, management and resource allocation issues. As indicated by Greer (2001), “situations where human resource capabilities serve as a driving force in strategy formulation occur where there are unique capabilities.” These issues were addressed in three different steps. In the first phase the operating business was separated from the corporate and functional groups (systems/technology, legal, etc.) as these issues are also gaining importance in the business world now days. With this step taken the efficiency of the employees increased, as they became able to concentrate at their areas of specialties.

Secondly the process of the assessment of each business process was changed in order to achieve the desired level of performance from the employees.

Thirdly the processes of planning and budgeting were streamlined with the strategic/competitive objectives with operating goals and requisite financial performance.

The entire process was undertaken in order to modify the whole corporate culture.

The HRM strategy of the company best suits the services provided by the bank. The holistic approach towards improvement all over the organization will lead to improved level of customer satisfaction. The customers are provided with advantage (distribution, customer relationships, and basket of services offered) rather than a crutch while establishing the business relationship with the Royal Bank. The HR policy of the bank supports the theory of strong performances of individuals rather than the performance of a monolithic whole business.

“The bank managers define and measure risk to determine changes in capital utilization and to evaluate risk-return trade-offs when making choices about business mix and other decisions. The resulting assignment of capital became a key input to the calculation of shareholder value, and to the overall decision-making process.

To establish priorities, allocate resources and measure performance, management needed a common currency or financial standard. To be effective in the competitive marketplace would mean balancing the interests of multiple stakeholders – customers, employees and shareholders. Royal Bank adopted shareholder value growth as a governing objective, and the metric of “value” or “value-added” for making strategic decisions, for acquisitions, to evaluate BU strategies, in product pricing, marketing and sales planning, or in day-to-day customer offer alternatives.” (Sharman and Shaw)

Appraisal is essential for effective managing. The Conference Board study showed differences between the stated objectives of appraisals and the way they were actually used. These differences may have caused dissatisfaction. In the Work Planning and Review approach to appraisal, It will be emphasized that frequent performance discussions need to be undertaken. But performance discussions and salary actions will be dealt with at separate meetings.

Appraisal will measure performance in achieving goals and plans and performance as a manager, that is, how well a person carries out key managerial activities. Traditional appraisal methods that attempt to measure personality traits have serious limitations. Therefore it is decided by the management to use the effective method of appraising managers against verifiable objectives. This approach is operational, related to the manager’s job, and relatively objective. Still, a person may perform well (or badly) because of luck or factors beyond his or her control therefore; the management-by-objectives approach should be supplemented by appraisal of managers as managers, that is, appraisal of how well they perform their key managerial activities.

The reviews will be undertaken on the basis of continuous monitoring. In the given suggested appraisal program, key managerial activities should be presented as checklist questions and grouped under the categories of planning, organizing, staffing, leading, and controlling.

Strategic choices require trade-off. Some alternatives involve high risks, others low risks. Some choices demand action now other choices can wit. Rational and systematic analysis is just one step in the strategic planning process, for a choice also involves personal preferences, personal ambitions, and personal values.

Development of short-range organizational Objectives and Action Plans:

The organizational strategy has to be supported by short-term objectives and action plans, which can be a part of the performance appraisal process. The short-term objective of the organization is to increase the customer satisfaction, which will lead to increased market share in future. Objectives often must be supported by action plans.

The achievement of the above stated goal will involve effective completion of the different tasks by different departments. All the managers of related department are required to prepare a schedule for achieving short-term goals, doing the homework, and obtaining the support of the team members. It is obvious that the long-term strategic organizational plans need to be supported by short-term objectives and action plans.

Below we will analyze the Reward system of RBC according to the criteria of four C’s.

The Four Cs:
More directly useful to most managers is Beer et al.’s use of the four Cs to evaluate the impact of HRM policies and practices on the organization:

“RBC introduced economic measures of performance and economic-based goals. Economic Profit (EP), which incorporates capital usage and its cost, was introduced to overcome the deficiencies of Return on Equity, which does not incorporate the cost of capital. Management adopted an EP focus to increase shareholder value growth by:

  • Increasing Net Income without tying up more capital
  • Increasing value by investing in projects with positive net present value;
  • Improving efficiency of invested capital by re-allocation capital employed; and
  • Improving risk-return profile.” (Sharman and Shaw)


“Royal Bank of Canada has been diverting as many operational tasks as possible to designated processing centers around the country. The bank also monitors the administrative workload on a regular basis. “We’re always asking if we have allowed administrative work to creep back in,” says Anne Lockie, Royal Bank’s executive vice president of sales. “It’s an ongoing challenge to keep employees focused on the customer.” (Monahan, 2003)


“For Royal Bank, employee satisfaction is rooted in “hard” business issues such as training rather than “soft” personal issues such as dress codes. “We don’t ask whether you want to dress casually at work but rather how you feel about your own capability,” Pollard says. “Do you get the training you need? What do you think of the performance evaluation system? Do you understand the goals? Are they well communicated and fair? Is your manager delivering what you need to succeed? In a lot of ways, it’s like internal market research.”

When a Royal Bank survey revealed that a series of mergers had left employees a bit fuzzy about the company’s core values; the institution crafted a new set of values. A subsequent survey showed that these values were now crystal clear to everyone. When a survey revealed that employees felt that the company’s leadership wasn’t very visible, the bank took measures to put its leadership in front of the rank and file, and subsequent surveys gave top managers higher marks. (Millman, 2004)


To establish priorities, allocate resources and measure performance, management needed a common currency or financial standard. To be effective in the competitive marketplace would mean balancing the interests of multiple stakeholders – customers, employees and shareholders. Royal Bank adopted shareholder value growth as a governing objective, and the metric of “value” or “value-added” for making strategic decisions, for acquisitions, to evaluate BU strategies, in product pricing, marketing and sales planning, or in day-to-day customer offer alternatives.


Strategic organizational planning requires the performance appraisal. At that time, the person’s growth and development should be discussed. Organizational goals and personal ambitions should be considered in selecting and promoting and in designing training and development programs. The following action plan is suggested in order to undertake the organization wide task of performance appraisal. The managers of the related departments will be responsible to undertake the following steps. (Koontz & Weihrich, 1994)

  1. Use rating scales that have few rating categories. It is difficult to differentiate the middle range of performers (approximately 67%), whereas it is relatively easy to rate the 10 to 20% at each end. Therefore, scales should be limited to between 3 and 5.
  2. Work team or group evaluations should be undertaken with equal emphasis to individual-focused evaluations. The increased interdependence of tasks associated with TQM in the workplace dictates that team performance be utilized. This action will encourage team members to help, support, and co-operate with each other.
  3. Require more frequent performance reviews where such reviews will have a dominant emphasis on future performance planning. Work team and individual performance data should be collected and reviewed with an evaluation of results and lessons learned. It may be necessary to have two reviews, one immediately after completion of the task and one when the performance cycle of the task allows evaluation of results. More frequent reviews with emphasis on improvement are much less threatening than the annual appraisal.
  4. An independent administrative process that draws on current job information and potential for the new job should make promotion decisions. Placing too much weigh on current performance in the selection process can force well-intentioned appraisers to make a poor decision. For example, the highest performing teller in the bank may not be the best person to be promoted to loan officer. (Prince, 1994)
  5. Include indexes of external customer satisfaction in the appraisal process. In order to accomplish this process, the customers and their requirements will need to be identified, performance metrics determined using a rating scale, and the improvement process initiated. Evaluation will be based on the change in the metrics once the base line has been established.
  6. Use peer and subordinate feedback as index of internal customer satisfaction. Initiation of this activity would be similar to the previous item.
  7. Include evaluation for process improvement in addition to results. Process behavior tends to be more within the person’s control. One of the basic concepts of TQM is continuous process improvement, therefore, if this concept is to be achieved, it must be appraised. There is frequently a lag between process improvement and the results from that improvement. (Webber, 1995)






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  • Monahan, J., (2003). Overcoming the Fear of Selling: Banking Strategies, January/February 2000, Volume LXXVI Number I, Published by BAI
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  • Sharman, Paul, A and Shaw, J., Royal Bank of Canada, – Ahead of the Rest: Deploying Value Based Management, Focus Magazine, For the performance management professional.
  • Allan J. Weber, (1995). Making performance Appraisals Consistent with a Quality Environment, Quality Digest (June 1995): 65-69
  • Wikipedia, (2006). Royal Bank of Canada, available from http://en.wikipedia.org/wiki/Royal_Bank_of_Canada

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