The Function Of The Reward Management Business Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Job pricing is the process of putting the price to the job considering such main factors as the job evaluation, labor market rate and the company policies. These main factors serve as the basis for making the job pricing decisions.

According to (Wayne), the job evaluation helps to determine the values of the different jobs within the company. The company needs to develop it fairly to have the hierarchy of the jobs from the most valuable for the company to the least in order to get rid of the compensation inequity within the company. There are total four methods of job evaluation and the simplest one - ranking method can be seen in the Table 11-1.

For example, there would be a certain internal pay inequity if the maid would get more than the office manager considering that office manager has more value for the company. According to (Wayne), any inequity leads to moral problems. If the employee thinks that he get less than he deserves, he can decrease his efforts or he may even quit. Both outcomes will result in the decreased company performance, therefore the job evaluation should be designed fairly. According to (Wayne), about 52% out of 13 000 surveyed US employees are dissatisfied with the internal equity within their firms. According to (Armstrong) Colt Telecom company works very hard on the internal equity by ensuring that compensation packages are designed by the contribution and value of the each job within the company.

Labor market rates in their turn serve as the point for the companies to find their own compensation level in the market and to develop their compensation policies. In order to find the market labor rates, companies use the compensation surveys and they get the information similar to below.

According to (wayne), there are three types of the compensation policies that companies use, they are the pay leaders, the market rate and the pay followers. The pay leaders offer higher payments than the market rate. In this way, they aim to attract highly specialized and productive employees, who would be able to perform twice as much as the usual employees. The companies that follow the market rate pay the same salary rate as in the market. Accordingly, the pay followers prefer to pay less than the competing firms. According to (Wayne) the real life case with the Trig Ekeland company showed that economizing on the employees doesn't give the result and even more can be expensive. The Trig company had a policy of paying the lowest compensation available. One of the hired employees, during the farming operations has managed to damage the tractor and combine. The company has stated that he was one of the most expensive employees. This example shows us that the job pricing decision must be taken accurately; Firstly, the internal compensation equity should be proposed to retain the existing employees and to avoid losing their efforts, secondly, it is advisable to pay more than the market to attract highly professional employees with the abilities to do something. (G9355) states that the recent researches showed that the rewards determine what employees are attracted to work and who will be working in the company further.


The effective reward systems that tie the performance to the high rewards motivate employees to perform well, resulting in the overall increase in the organization performance. This words are supported with reference to (Armstrong), where the Diageo's performance and reward director stated: "Great incentives should be used to drive great business performance. Great performers will always perform. Great reward programmes can help the whole organization to perform." The great example of the motivating reward can be the performance related pay, which includes commissions, piecework, stock options and etc., where the increased employee performance will be equal to the increased reward. Such rewards tend to increase the efforts of the employees, as a result, employees would finish more tasks without the need for extra working force. In the sales related businesses, motivated employees would generate more sales, therefore more revenue for the company. In both ways, the company would gain. For example, the real-life case of the success of the performance related pay is the Paychex company. According to (j Madura), in the beginning of 1998, Paychex has decided to give the stocks of the company as a reward for its employees. And the result was amazing, because during the 1998 the Paychex stocks has increased due to the increased efforts of the employees. The following chart illustrates the full picture.

As we have seen motivation plays a big role in the company performance, but the main issue is that different people are motivated differently, therefore the reward system should combine different rewards. It means that the reward system shouldn't include only financial rewards such as base pay, performance related pay and employee benefits, it should also include non-financial rewards such as development opportunities, recognition, respect, responsibility, social acceptance, achievement and so on. The financial rewards can have the fast influence on the performance, but non-financial rewards last longer and they work better. Latham and Locke (1979) (J Madura) stated that money is the initial incentive, but they are not sufficient to lead to high performance. After all, job satisfaction doesn't depend fully on the payment, it depends also on the non-financial rewards. According to (Madura), Herzberg has conducted a major research to find the job satisfaction level of the employees. The result of the research was that the employees satisfied with their jobs named achievement, responsibility, recognition, advancement and growth (non-financial rewards) as the main factors of their job satisfaction. However, the lack of the adequate salary, job security, working conditions and supervision made them very dissatisfied with their job. The same thing was claimed in the Maslow's hierarchy of needs, which is shown below

In this graph, we have the hierarchy of the human needs sorted by their significance for people. Psychological and safety needs can be fulfilled by the money or financial rewards. However, as soon as the employees are satisfied with the financial rewards, they would be looking for non-financial rewards upper the ladder, but those non-financial rewards are highly dependent on the working environment and the meaningfulness of the work. Accordingly, the companies should apply the total reward system that would combine both the financial rewards as well as the non-financial ones. Firstly, it would have much more influence on the motivation, secondly, total reward would target different human needs, and finally, it would make the workplace appealing. Pffefer (1998) (armstrong) noted that: "Creating a fun, challenging, and empowered work environment in which individuals are able to use their abilities to do meaningful jobs for which they are shown appreciation is likely to be a more certain way to enhance motivation and performance"

The most US companies know it, for example, the famous Ford Motor Company regularly conducts workshops to build the self-esteem and to point out their relative worth to the business, it is one of the methods the company uses to increase the job satisfaction.

As it is written in (armstrong) Vroom (1964) had developed the formula for performance, which is: Performance = Æ’ (Ability x Motivation). As we have covered the good reward system firstly helps to attract the highly specialized people who have ability, and secondly it motivates the employees. In other words, the company reward system is the determinant of its performance.

Employee development

Performance management is the process of improving the employees through the use of the performance appraisail systems, training and counseling, and through feedback.s concerned with the assessment of the individual in order to ensure that the employee performance goals are being me. Performance appraisal tends to be the main tool for the evaluation and it plays a big role in the employee development. According to (Armstrong), the main aim of the performance management is to develop employees that are more talented and skilled. Initially, adequately constructed performance appraisal helps to recognize how well the employee is performing. The results of the appraisal will help to determine several decisions. In case of the outstanding performances, the employee will be motivated to work even harder by being provided with the promotion, transfer or the financial reward. According to (Wayne) most managers think that outstanding performance should be rewarded with the financial reward raises. The performance appraisal also provides many non-financial rewards. In case, appraisal finds the weak points of the employee, he may be sent to the training sessions to improve himself. In addition, the performance appraisal helps to identify the employee potentials, as a result, the manager may help the employee with his career way. Moreover, due to the performance appraisals employees get the feedback on their performance serving to reinforce their performance. Even during the performance appraisals, employees develop and learn through the coaching of their manager. Overally, the conduct of the performance appraisal may contribute to the employee development as well as to the organization efficiency.

As we have covered here, the reward systems play a major role in the organizations. Its thoughtful organization may affect the performance of the company as a whole. The job pricing can affect people who will be attracted to the company as well as who will be working within the organization. The reward system that will combine both the financial and non-financial rewards in proportion will affect the motivation level and engagement of the employees. The performance management system will help to develop the employees.

All in one, the reward system will help to attract and retain highly specialized employees, it will motivate and engage employees and,of course, develop them.,d.Yms&psig=AFQjCNEYtslcjivnG_kIvz3o-pNYdAAVyA&ust=1363530523976622