Intellectual capability of the organization builds successful business. Heart of this is people and their talent. To be successful business has to continuously attract, groom and retain talent. "Process of managing human talents to achieve organization's objective" is called Human Resource Management. The process includes recruitment, compensation, employee services and relations, learning & development and overall, conducive organization climate.
One of the important components of HRM is Compensation and benefits called "rewards". Anything that organization does for the employee is broadly considered as reward. The influence of reward is high on employee and that is why Michael le Beouf, (1985) quotes, "You get more of the behavior you reward. You don't get what you hope for, wish for or beg for. You get what you reward."
What was called 'pay' and then became 'remuneration' is today often termed 'reward'.
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"A reward may be anything tangible or intangible that an organization provides to its employees either intentionally or unintentionally in exchange for the employee's potential or actual work contribution, and to which employees as individuals attach a positive value as a satisfier of certain self-defined needs." John Shields 2007
Types of Rewards
Rewards can be seen as including not only financial rewards but also rewards of a beneficial non-financial nature. Rewards can be divided into two broad categories: 'intrinsic' and extrinsic'.
Rewards that are at the end of the Maslow's hierarchy of needs like income to survive feelings of security, etc which are external to the job are extrinsic rewards. These rewards meets the basic needs of an employee.
Rewards that are on the top of Maslow's hierarchy of needs like satisfaction, job challenge, responsibility, etc which are internal to the job are intrinsic rewards. These rewards are considered to be the most powerful motivators of work effort.
Under traditional management reward mean "pay", "remuneration" or "compensation", the substance that can be measured in cash and paid to the employee in return for their service to the organization. Traditional approach was more of a salary administration, lacking strategic elements, more of a rigid policy, where employee fall in the system and line managers do what they are told.
As per Rosabeth Moss Kanter (1987) "Status, not contribution, has traditionally been the basis for numbers on employees' pay-check. Pay has reflected where jobs ranked in the corporate hierarchy - not what comes out of them."
Modern management looks beyond substance and money and cosnsiders indirect income and non-monetary compensation as an integral part of the reward structure.
Michael Armstrong (1998) gave the concept of the reward management which aims at supporting organization objectives and culture on the one side and encouraging the value added behavior on the other side by offering flexible and equitable rewards to motivate employees and achieve team work.
As mentioned by Michael Armstrong in 'Employee Rewards', Lawler (1990) originated the phrase "new pay" to reflect need for an understanding of the organization's goal, values and culture, and of the challenges of a more competitive global economy when formulating reward policies. He advocated people-based pay instead of job-based pay, i.e. paying people according to their value in the market and in relation to their knowledge and skills.
More recent is "total reward". This strategy considers all the possible way of rewarding employee, whether monetary, non-monetary or emotional. It considers components like favorable working environment, career growth opportunity and compassion leaves as a part of the package. It attempts to achieve organizations objective by increasing performance and by engaging employees.
The approach to rewarding people
Reward should consider all the means of compensating employee. It should be a good mix of monetary, non-monetary and emotional payments. To be effective it should be balanced in a way that employee s are motivated and entity's goal are smoothly achieved.
This necessitates a more strategic approach to rewards; one which attracts new talent; retain the existing, and equally ensures that the corporate objectives are achieved.
Winning reward strategies is about developing the strategic dimension of reward management by taking into account business drivers and employee expectations. It is framework of reward policy, process and practice of how people should be paid to achieve organization goals.
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"A strategic orientation to reward means understanding the 'big picture' - what organization is there to do, where it is going, and how it is going to get there. It involves alignment of the reward strategy with the business strategy and reward strategy with other aspect of the HR strategy. This means reward strategy flows from the business strategy and the HR strategy". (Armstrong M., 2003)
"Reward strategy is a holistic approach aligning with business strategy and people strategy; it encompasses everything employees value in their employment relationship like compensation, benefits, development and the work environment". (Kaplan, 2007)
Effective reward strategies have three components: (Brown, 2001)
A clearly defined goals and a well-defined link to the business objectives.
A well-designed pay and reward programs, tailored to the need of the organization and its people; one which is consistent and integrated with each other.
Important but widely neglected; requirement of an effective and supportive HR and reward process in place.
Reward strategy is an evolutionary process and one should not try to do too much simultaneously but rather should focus on the critical issues one at a time.
To be complete, rewards should be built in a way that not only boosts the performance of the staff but reinforce positive behavior and should have the final objective in mind - which is aligning employees with strategic goal of the entity. If organizations business goals are to be met, pay system must flow from the overall business strategy.
By definition reward offers scope for lot of creativity and flexibility. Let us talk about key components of a winning reward plan and its benefits.
Components of winning reward plan
Pfeffer (1998) in his paper 'Six dangerous myths about pay' published in Harvard Business Review; May-Jun 1998 mentions six golden rules for effective reward plan.
As per Pfeffer, organization should focus more on building a proactive recognition system around the reward process, pay attention towards creating positive work culture and promoting enhanced working life rather than just trying to manage the process.
Include a 'large dose' of collective reward in employees pay packages.
Recognize that pay cannot substitute for a working environment 'high on trust, fun, and meaningful work'
Make pay practices open and transparent, thereby sending a positive message about the equity of the system
Use other methods besides pay to signal company values and focus behavior.
Realize that pay is 'just one element in a set of management practices which can either build or reduce commitment, teamwork and performance'.
Ensure that the messages sent by the pay system reflect what the organization values, and align pay with other management practices.
Benefits of strategically designed reward plan
A strategically designed reward system creates a "win-win situation" both for the employees and the employer.
Benefits to the employees
Balanced reward package aims to attract, retain, and motivate employees. It will benefit employees in the following ways;
Provides clear understanding of the compensation philosophy of the company.
Make feel staff that they are valued as the reward is in accordance to their performance and behavior.
Enhance career development as company focuses on developing the skills, knowledge and abilities of the employees.
Benefits to the employers
"Strategic HR considers reward as strategic tool to bring best talent through the doors, and keeps them there". (McKinsey & Company, April 2001)
A clearly defined reward policy that links employee's goals with organizational goals and is designed to meet individual employee's expectation could lead to following benefits.
Attract and retain best talent.
Enhances performance & services by targeting motivation.
Encourages creativity and productivity which helps reduced overall cost.
Programs such as career development, training, job rotation, clear career path, and work-life balance will increase employee satisfaction and reduce turnover.
By linking corporate goals with reward policy, organization objectives are achieved
Assists in maintaining and strengthening of the psychological contract by indicating what behavior the organization values, i.e. what is paid for.
Motivating through Reward
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Motivation comes out of behavior that can be influenced but not generated. If not properly motivated, even self motivated individuals can be disturbed, depressed, or exhausted. They can be motivated only when they recognize that their efforts are noticed by the management and are appropriately recognized, valued and appreciated.
Strategic reward plays important role in employee motivation by creating voluntary behavior. It positively influences employees' behavior and belief. A person with a strong belief in the place he works gets motivated which reflects in his performance. Thus creating an environment of performance based culture. Company that has culture of performance and a team of content employee has greater chances of surviving in this cut throat market conditions. Such companies tend to make better returns for their shareholders.
Organization has to innovate themselves and offer employees more interesting and engaging rewards that are not only creative but also timely, and recognizes the needs of employees as well as the corporate. Comprehensive reward can pay a bigger role in retaining and motivating talent if they are meet aspirations of employees.
Rewards that do work
To be successful, reward plan needs to be designed in a balanced. Any system designed without considering the final desired outcome could and the expectation of the staff will not produce desired result.
Dr Edwin Locke's goal setting theory of motivation highlights importance of well defined goals and timely feedback in motivation of employees. As per the goal theory employee works towards their set goal and aspiration to achieve those goals motivates people which will result into improved performance.
This provides organization an opportunity to build a reward strategy that seeks congruence between individual and corporate goals. A clearly defined reward that links personal goals with the organizational goals and draws relationship between reward and accepted behavior will generate higher employee performance that achieves organizational objectives.
A transparent, simple and realistic performance based reward system where person is paid on the basis of his contribution to the overall system, to the team work and towards the objectives of the company, on a longer time frame, helps in creating a positive performance based culture.
A balanced performance system in which employee can measure his reward with efforts, builds trust among employees that improved performance will be rewarded. Since good behavior are rewarded and poor behavior are punished it motivates employees to continuously improve their performance.
Performance related plan, with extrinsic motivation like money also provides intrinsic motivation; basic human need - to be rewarded for achievements.
A level playing field, pay that doesn't differentiate by-gender, by-caste, by-nationality and is purely based on person's job, caliber and competencies creates a positive environment for performance.
As per Adam's equity theory of motivation, employees seek equity at work place as compared to others. A feeling of receiving an equitable reward influences their behavior and performance.
Three major equations of equitable rewards are; (Donna Deeprose, 2006)
Reward must be equal in value to the quality and quantity of work done by the employee.
Reward must be equal in value to what is received by other employees doing similar work of similar quality and quantity.
Reward must be equal in value to what is received by people who do similar work for other organizations
As per Vroom's expectancy theory of motivation people thinks about their efforts and perceived value of the outcome. They build on their expectation based on their perception of what they should be rewarded for the given effort. If they believe they will be rightly rewarded for their efforts they get motivated.
Hence, reward will motivate only if, there is a clear relationship is established between reward and effort, if reward matches need of the people and if they matches perception of people.
Whatever good the reward may be but if they are perceived not to be sufficient or fells short of belief it will effect behavior and thereby motivation of the employee. One of the important aspects of reward strategy is that they should be transparent and informed. Employee should be able to relate reward with outcome or say they should be able to identify what they need to do to get that reward.
Contingency theory as applied to reward strategy tells us that:
Diverse organizational strategies and cultures require different reward strategies.
The usefulness of different reward strategies, policies and practices varies according to the context
It cannot be assumed that any one reward practice will have an equal effect on all those who experience it.
Not everyone is motivated in the same way and people's reaction to a practice such as performance - related pay will be contingent on what motivates them individually.
Successful plan is one which is sensitive to the needs of its people. Giving a choice to employees with different pay plan satisfies needs of employees as per their perception and helps boost performance.
This will also result in lower costs, as company then tries to provide only such benefits that motivates individual employee.
A reward system which is frequently changed, leaves employees in uncertainty and de-motivates them from performing as they do not have trust as to whether the performance will lead to the benefits as predicted by the current system or the system will be twisted to deceive them from their lawful reward.
This situation of distrust can best avoided only if reward system is consistently used over a period. Any change is the system has to be a better version of the earlier and employee should be taken in confidence before changing the system.
Complicated plan doesn't give desired result as people would not be able to map the return with the effort. Such plans sometimes rises concerns over the intention of the management and with this doubt in mind a small miscalculation will generate the feeling that reward plan is to deceive them and hence could impact the performance negatively.
Easy to understand plan helps employee establish relationship between the effort and the reward. This one to one mapping of effort and rewards helps employee calculate their own reward which helps building trust as what is perceived is received. This helps buy positive behavior and thereby a better performance.
Simply putting employees should be educated about the reward so that they he can himself calculate his rewards.
Organization should push forward any reward strategy after a thorough due diligence of the cost and the benefits that it will generate. Any poorly formulated reward policy without considering the cost could turnout to be a burden for the organization.
Policy once pronounced if altered due to high cost impact will have negative implications on the performance. Hence organization should choose a reward policy which is financially sustainable.
Rewards to be effective should have a good blend of all the ingredients; cash - non cash, long term - short term; fixed - variable; individual - team and guaranteed - bonus. Any plan to be successful should have a clear effort - reward equation. It has to make a distinction between the performer and the non performer.
Just raising salaries is not the solution; organization should find the right balance between employee expectation and organizations objectives..
Employees are better guide to design an effective reward system as they know the tasks and requirements of the jobs.
"When employees have input into the reward system they are more likely to know what they have to do to earn a reward, because they've established the criteria. They will also value the reward and respect the reward recipients, because they set the standards the recipients met. This will help create a level playing field and charges of favoritism disappear when employees are system designers and judges." (Donna Deeprose, 2006)
Any reward strategy to be successful should have an inbuilt constant feedback loop. Management should create various mechanisms whereby continuous feedback on the reward system could be gathered. Methods that can be employed are;
By asking right questions,
Giving various options to employees like anonymous online survey, suggestion box, so that the employee can pick one without fear,
By observing what makes the employee smile? What does the individual take pleasure in during the workday?
Right feedback and timely action can save the organization from any possible repercussions of the reward plan. Such a mechanism will also give a confidence to the employee that inputs are taken and valued.
Employees are human and every human has emotions. A reward strategy which is insensitive towards the emotional needs of people can't be successful in the long run.
As per Maslow's hierarchy model, need for belonging and self actualization are high once the basic needs are meet. Hence any reward system to be effective should also essentially include physiological rewards like recognition and appreciation as a part of winning reward strategy.
Rewards like thank you note also go a long way in motivating an employee. Appreciating employee for his outstanding achievements and positive behavior can be achieved through rewards like "best employee for the month"
Consider rewards like;
Flexible work schedules
Workplace amenities like on-site fitness centers, lactation rooms for new mothers, on-site subsidized child-care facilities
Long vacation with family
More discretionary job content
Set challenging goals for themselves
Continually providing new opportunities
More responsibility and control over the work
When people are recognized for their potential, their efforts, and their accomplishments, there is a greater likelihood they will develop into more motivated employees.
And Rewards that do not work
Not all rewards motivate. A static reward process which doesn't change with the changing time can be detrimental to employee's motivation.
Pure Money Plan
There is no doubt that money is an important part of the reward structure. It satisfies the basic need for survival and security. It can also satisfy the need for self esteem as it is visible mark of appreciation and status.
But money cannot create a lasting satisfaction though temporarily lack of money can even create dissatisfaction. This is reflected in fact that the best-performing companies do not always pay the highest salaries, but they do pay their top performers much better than their average ones.
"People do work for money - but they work even more for meaning in their lives. In fact, they work to have fun. Companies that ignore this fact are essentially bribing their employees and will pay the price in a lack of loyalty and commitment." - Jeffrey Pfeffer, "Six Dangerous Myths about Pay," Harvard Business Review
Theorist differ as to what extend money motivates but one thing is clear that value of money is different from person to person. Money is one of the essential part of reward but not complete reward in itself. It can prove dangerous to assume that everyone can be motivated to same extend with the help of money.
Simple Merit Plan
One of the widely use reward plans are based on merit where individuals are rewarded for their performance. Simple merit pay by itself is not enough to motivate people. Sometime it is not sufficient to retain right employees. Increase in merit based plans is small and becomes part of the monthly pay hence the relationship between pay and performance gets weaken and less motivating. It demands consistent performance year on year and ignores long term performance and loyalty of the employee, which de-motivates as due to some uncontrolled reason a blip in performance penalize employees good intensions.
Any plan if poorly implemented will not serve the purpose. Reward strategy to give you desired result has to be implemented on time and with clearly set criteria.
Implementation has to be continues process and organization needs to keenly watch the process and support staff whenever required. It's not enough just to set goals for your employees and then wait until reward time to see if they've met them.
Organization needs to keep up with employees' progress toward goals, facilitate employees' access to resources, and guide them toward solutions to problems that block their progress.
Not properly Communicated
If rewards are not properly communicated than it will not have an desired effect. Rewards to be effectively have to be communicated to the employees and organization should ensure that employees understand the reward system. They should know what they are expected of and what they will gain out of certain behavior or outcome.
Rewarding outcomes and not behaviors
A consistent positive behavior that contributes towards building positive workplace atmosphere is more challenging than rewarding performance.
If organization recognizes and rewards outcomes more than it does behaviors then it is missing an opportunities to improve employees' perception of the equity equations; to motivate them to improve their skills, work habits and processes; and to clarify for them what behaviors the organization values
One-size-fits-all approach to reward system doesn't work in longer run. Reward to be effective should meet the individual expectation of the employee and hence has there has to be choices for the employee.
A reward system that has been designed without considering the cultural, religious or professional difference of person doesn't work well. A supervisor can be motivated by extrinsic reward but a not a scientist or an NGO worker, as their needs are more intrinsic in nature. Same way an American can be more motivated by money rather than a Korean whose needs are more social.
NGO workers, artists, scientist and such vocational are not rewarded by substance but by way of intrinsic rewards. They look for satisfaction from the work, like enjoyment from the performance of the job, excitement about surmounting challenges, satisfaction in helping others, joy of inventing and pride in doing a job well.
Reward that has high chance of getting recognition from the employees is one meets their aspirations. The challenge for the manager is to recognize employee aspiration and accordingly offer reward that meets his aspiration.
Case study: RasGas Company Limited.
RasGas company Limited's corporate objective "to be a reliable world class supplier of LNG". The business strategy choices that the company has made to achieve its corporate objectives are;
Enhance reliability and gas deliverability from reservoir to delivery point
Attract, retain and develop a high-performing workforce and provide a caring and inclusive workplace environment that will enable RasGas to meet its' current and future business needs through an effective set of integrated people processes and a quality Qatarization program
Analyzing the current reward processes, I believe that company has been taking steps in the right direction by offering comprehensive reward plan that is;
Flows from the overall business strategy
Balanced with variety of additional benefits
Simple and easy to understand
Clearly communicated by way of policies, procedures and guidelines
Engaging as it offers intrinsic values like work-life balance, regular rotation of job, job families, employee trainings
seeks employee feedback with regular survey on organizational climate
Integrated with other HR strategies like continuous emphasize on investment in developments of Qatarisation (locals).
Though so much has been done, following are the major improvements that RasGas management needs to focus to make reward practice more effective.
eliminate element of forced ranking from performance based plan
Ensure equity as currently reward practice follows Middle-East patent of pay structure, where pay is based on gender and nationality rather than performance, caliber and competency of the employee.
Meet expectation by making rewards fair and transparent
Infuse flexibility by offering reward choices to employees instead of trying to fit one plan for all.
Consider long term performance under merit plan which currently only focuses on yearly performance
Create a strategic balance by recognizing long service rewards
Encourage team rewards against purely individualist rewards
Focuses behavior rather than only outcome
Be consistent in implementation of the adopted strategy.
consider variable component of the pay which stimulates people to keep challenging themselves and thereby come up with incremental higher performance is still a tiny part of the remuneration
It is all from money to saying "Shukaran" to the employee for the job well done falls under the broad term "reward". There is a strong connection between different components of reward and positive employee behaviors. Everything has its own influence on people. Not all reacts in same way to different components of rewards but nevertheless you can buy a great degree of good behavior if you strategically blend the components and offer different variants to the employees.
From whatever has been discussed winning reward should have following character
Attract, retain and engage employees,
Links personal goal with corporate goal
Encourages positive behavior
Equitable, fair and non discriminative
Meets perception and belief
Simple and achievable
Communicated and easy to understand
Balance of short term and long term component
Recognizes non cash component
Flexible to address the needs of different culture and personality
Cost effective to sustain in the longer run for the organization.
Consistent and effectively implemented
Considers employee feedback
Managing reward programs in a manner that include all the elements of reward has a vast appeal. The challenge, however, is to implement a program that will have a lasting positive impact. Important is to design the reward in a way that finds good balance between cost and performance, employee goals and corporate goals. Overall it is more important that reward policy wins the hearts and minds of the employees.
To me, keep options broad and flexible for your people. I will pay money to the money oriented, emotional pay to the sensitive and power to the egoistic, but all within the right framework, at a right time and in equitable manner.