The high competition rate in companies

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In the contemporary business world, the competition is very high and equally the expectations are at its apex. The commercial success today, depends on employees using their talents at the fullest. The employees talent can be used to its maximum if properly respected and awarded as well. There has to be some factors that can direct them to work hard and efficiently to come up with flying colours.

In this context, there enters the concept of payment and reward management. It is timely payments and rewards that ignite the employees to put extra effort into the job. Now, what is meant by payment and reward?

Pay is key factor of human resource management as it is the main reason why people work. "Payments and rewards (The Strategic Managing of Human Resources, John Leopold, Lynette Harris, and Tony Watson) are primarily concerned with how employee contribution is recognised through monetary rewards, with an emphasis on the use of pay as a strategic means of aligning individual efforts to organisational priorities."

In the organizational terms, it can be said that rewards and payments is the sum total of monetary, non-monetary and psychological payments that an organization provides for its employees in exchange of work they perform. Thus, payment and reward management is a vital aspect of human resource management today and cannot be left unnoticed if an organization wants to gain maximum profits.


Payment is something that every one works for as it runs the financial aspects of every employee. Without payments, there is a very rare person who wants to work voluntarily. Payment activates the employee to perform to his best and rewards are the extra top-ups to his present salary.


As it can be understood that payment and rewards are important for the growth, success and profit of both the employee and organisation. Payment and reward can optimize the employee's working in the following ways:

Rewards and payments shape behaviour-

they make the transition to a healthy lifestyle more enjoyable

they can turn goals into habits

they help to maintain a positive attitude

Rewards and payments are motivating-

they give additional reason to work for

they help to stay on track

they give encouragement

Rewards and payments help build confidence-

employee gains confidence when rewarded

Thus, for the success of an organization, it is utmost important to take a proper care of its employees in all ways. It is only through proper payments and rewards schemes that the performance of an employee can be enhanced which in turn brings profit to the whole organization.


Payment and rewards management is an important challenge for present day managers. The payment and reward system should succeed in achieving its key objectives. The management must meet numerous economic and behavioural objectives:

Support the organization strategy

Retain capable employees so that turnover is held to an acceptable level.

Ensure internal and external equity.

Be sustainable within the financial means of the organization.

Motivate employees to perform to the maximum extent of their capabilities.

Comply with legal regulations.

Be efficiently administered.

Promote organizational citizenship.

Thus, for the success of a payment and reward system depends if it is able to boost the employees morale and build in them loyalty and trust. Similarly if a reward system increases an organization's market share, create new markets and foster the company's performance can be said to be a perfect reward system.

Reward management at ­Sony Pictures Entertainment

At Sony Pictures Entertainment, as a part of reward management system all eligible employees are provided incentive opportunities. The company's performance appraisal process promotes fairness and rewards strong contributors who help to achieve company goals.

Sony Picture Entertainment has two bonus programs, the ASPIRE Program and the Screenlighter Spotlight Program which provides opportunities for employees to receive rewards.

The Aspire Program awards cash bonuses to employees who meet or achieve the annual goals established at the beginning of each fiscal year.

The Screenlighter Spotlight Program provides cash payments to eligible employees who demonstrate extraordinary effort, beyond their regular job responsibilities.

This example clearly illustrates that the reward and payment system are in place to achieve organization's goals and objectives. (


Any action is awarded in its ratio with the performance. The more you perform the more you gain. The reward mechanism of any organization to a very great extent decides the overall performance of the employee and ultimately, the organization's turnover. The more the turnover the more the profit and, thus, best the reward management system. The reward management process can be better understood by the pictorial below:

The reward management should properly evaluate the job of an employee and then evaluate the performance and then should decide his/her pay structure and design the reward strategy.


Basically, there are two types of rewards.

Extrinsic rewards

Intrinsic rewards

EXTRINSIC rewards fulfil the basic needs for survival, security and recognition of an employee. This includes financial payments, working conditions, and managerial behaviour.

INTRINSIC rewards mean fulfilment of psychological conditions. (Bartal and Locke, 2001)

The employee rewards has a broader outlook and can be studied in a great detail.


Individual Rewards

Team Rewards

Organizational Rewards


Basic Wage


Piece Rate




Paid Leave



Team Bonuses

Gain Sharing

Profit Sharing


Scanlon Plan


Time: Maintaining work


Energy: Performing tasks

Competence: Completing tasks without errors.

Cooperation: with co-workers

Commitment to institutional goals

(Human Resource Management-Theory and Practice, 4th Edition, Bratton and Gold)


Basic Wages:

It is a basic payment method given to every employee in return of his work.


Employees willing to work extra hours for extra wages are awarded with overtime as per their work efficiency.

Piece Rate:

It is a payment mode in which the employee is paid for each unit of production at a fixed rate.


Employees bringing extra business to the organization are paid commission in respect of their work.


It is an extra amount of money paid to an employee as a part. Bonuses are designed to reinforce corporate identity and performance. (Armstrong's Handbook of HRM Practice, 11th Edition, Michael Armstrong)

Example of Ford Bonus Schemes for its employees:

Ford Motor Co. has assured its 21,300 salaried employees they will get bonuses for 2010 if the auto maker meets certain targets. The new bonus scheme puts all of Ford's salaried employees in the U.S. and Canada under the same bonus plan as upper management. ( ""&HYPERLINK ""cat=5)

Merit Pay:

Merit Pay is given to employees as a part of a person's annual increase on the basis of an overall performance appraisal. This award method has a long track record and is commonly regarded as an effective motivator. Merit Pay is implemented on an institutional wide basis to give all employees an equal opportunity for consideration.

Pros and cons of Merit Pay

Allows the employer to differentiate pay, given to high performers.

Allows making difference between individual and company performance.

Allows the employer to satisfactorily reward an employer for a completing a task that might not be repeated.

But in merit pay the pay is subjective.

Paid Leave:

Employees are also awarded paid leaves in turn of their regularity and discipline at work. Employees are given payments when they are at leave for a certain period of time.

Example of Sony Pictures Entertainment Paid Leave Schemes:

Eligible employees receive 10 days of paid vacation per year. Additional paid vacation time is provided as the length of their continuous job increases. (


Incentives are given to the employees as unconsolidated payments or gifts such as holidays, vouchers and so on.

Performance Related Pay:

Performance related pay is one of the vital rewarding system followed by most of the flourishing organizations. Both the employees and employers appreciate performance related pay because it is fair in practice. It depicts simple principle-'the better you perform the better you gain.'

Performance related pay means the variable part of pay which is awarded as per the employee's performance. (Performance-related pay policies for government employees, by Organization for Economic Co-operation and Development).

Thus, performance related pay can be used as a generic term to describe a variety of payment systems equivalent to an employee's performance. Performance related pay can benefit both employers and employees. By emphasizing the importance of efficiency and effective job performance, employers can benefit from higher productivity and quality work. Higher pay can be targeted at the better performers, encouraging them to stay with the company and continue to perform to a high standard. Good employees benefit from extra pay in return for extra quality of performance. (Human Resource Management-Theory and Practice, 4th Edition, Bratton and Gold)

Thus, it is very clear that performance and reward are directly related to each other. An organization set some goals for increasing its market and profits and employees are trained to achieve these goals and then rewarded as per their performance.

Performance-related pay replacing the annual bonus:

HR services firm, Hewitt Associates survey depicts that instead of an annual bonus, employers are increasingly opting for performance based bonuses that must be re-earned annually. These variable pay programmes are now offered by almost eight out of 10 employers.

Types of performance related pay

Individual Performance Related Pay:

Employee is rewarded based on his individual performance. When an employee performs to his fullest and best, he is awarded with merit issues.

Team-based Performance Related Pay:

Under this system, employees are awarded on the basis of their performance in a team or group.

Competence related pay:

This system awards the employees based on their skills and competence. It is a method of rewarding people wholly or partly by reference or skills they demonstrate in carrying out their roles. (The Strategic Managing of Human Resources, John Leopold)

Contribution related pay:

In this system the performance is counted depending upon the contribution of employees in accomplishing a task.

Example of performance related reward at Arcelor Mittal Group:

At Arcelor Mittal Group to utilize the full potential of the staff, organization provides a supportive infrastructure allowing participative target setting, decision-making and equitable, performance based remuneration. An integrated performance-reward system measures performance-reward system measures performance results and allocates commensurate compensation as part of a total reward culture. ( ""&HYPERLINK ""mid=24) Thus, performance related pay system is one of the fair means of awarding employees and also equally acceptable by the employers.


Team Bonuses:

By team bonuses is meant employees are awarded with bonuses as per their as a team. The total team effort is awarded on the accomplishment of the task.


Gain sharing is the system of sharing with employees greater than expected gains in profits or productivity. (Human Resource Management, Robert L. Mathis, John H. Jackson)

It involves regular financial payments to employees, improved results for the organization, and regular consultation with employees about how to improve performance. Gain sharing is widely used by the small as well as larger firms. Honda Motor feels that gain sharing is an innovative reward system that enhances organizational development. (


Profit Sharing:

Profit sharing is a system in which employees are paid equivalent to an agreed proportion of the organization's profits. Thus it is a system which gives employees a share in the profits of the organization. Each employee receives a percentage of those profits based on the company earnings. It is one of innovative way to give employees a sense of ownership in the firm.

Example of profit sharing scheme at John-Lewis Partnership:

For the past 10 years, John Lewis Partnership has made profit-sharing between 9% and 22% of annual salary. The profit-sharing is based on profits for the trading year beginning each February, and is determined by the organisation's partnership board. After any capital is held back for reinvestment, the remaining profit is distributed among its 64,000 employees. (

ESOP (Employee Stock Ownership Plan)

Employee Stock Ownership Plan is a method in which employees of a company can own a share of the company they work for. The employees can receive stocks and shares of their company as a bonus or can buy them directly from the company.

ESOP is chiefly designed to reward and motivate employees. It can also be regarded as a retirement plan which an organization may make available to its employees. Participants in the plan are not taxed until they receive benefits from the plan, and a company may be eligible for certain financial incentives such as reduced tax rates in return for establishing the plan. (

ESOP example from Sony Pictures Entertainment

At Sony Pictures Entertainment, eligible employees can buy American Depository Receipt (ADR) common stock in the parent company, Sony Corporation, through automatic, after-tax payroll deductions. (

Scanlon Plan

The Scanlon Plan was developed to integrate the interests of the employees with the interests of the company so there would be a strong spirit of cooperation between employees and management. Milkovich and Newman, 1987 says-"the Scanlon plan is a participatory philosophy of management that involves a pay incentive system and a suggestion system. The key element of this plan is that the employee benefit, through pay, from the problems that they help to solve for the organization. (Managing Organizational Behaviour, Henry L. Tosi, Neal P. Mero, John R. Rizzo)


Each every individual needs some backing force to perform extra. There has to be some reason for which a person can perform above the average and normal expectations. In the case of employees, these motivating factors are their awards and incentives which they get in return of their performance in the organization. Incentive awards and employee recognition are important and useful for both the employee and the employer. Incentive award and employee recognition are an important part of an employer's pay-for-performance compensation strategy. On the other hand, an employee benefits for his extra efforts and win promotions for his excellence in the performance.

Thus, it is very important on the part of employer to award an employee with merit issues so as to keep making the employees performing better and better. And, on the part of employees also the awards are very very important as they inspire them.

Example of Honda Motors on employee benefits:

At Honda Motors, the employee labour union has refused to take annual wages and urged for the employee benefits. Now, the organization is focusing on the employee benefits in order to calm down the work force. Moreover, it is fair for both sides as employees will receive what they deserve and employers can reward who really deserves the benefits for his/her extra benefits. (


Management has to be extra careful in rewarding employees. It is of paramount importance to reward the right person with right merit. Many factors have to be taken into account for proper reward management. Managers must set valid standards for the rewards and skilfully monitor the working of employees and after analysing, reward the right persons.

On the part of management following factors should be considered while rewarding employees:

linkage between reward plans and corporate goals

clear and flexible goals

proper justification in terms of how reward plans will help to meet business needs

proper training to employees achieving the set targets

proper monitoring of the employees

proper analysing of the performance of employees

compatibility with short and long-term objectives

degree of employee acceptance of the incentive plan

rewarding employees in proportion to their performance

linkage between the incentive system actual performance ( Just-in-Time manufacturing: an introduction, T. C. Edwin Cheng, P. Jarvis)

These are the key factors which managers should keep in mind while designing the reward strategy. It is very important for the managers to find the right person and reward him equivalent to his performance.


To conclude, it can be said that all good work should be appreciated and awarded. In the corporate sector today, employers must give proper attention to its workforce so as to get maximum from them. The successful organizations are successful not only because they have satisfied customers but because they have satisfied workforce.

Thus, for the success of any organization proper care and attention has to be taken of its employees. Employees must be triggered to work efficiently and effectively by some means. Employees must be given chances to come up with innovative ideas and make them true. And, those employees who succeed must be awarded with benefits so that they may become the inspiration for other employees.

Rewarding employees is a system that boosts the working capacity of an employee. And, he thus performs at his best in the hope that he is going to be rewarded for his performance. Therefore, it is always good to reward employees with merit issues. Moreover, the contemporary commercial world calls for the contemporary managers to not to treat payments and rewards as an expense but utilize it to influence the employee behaviours and improve organization's performance. (Human Resource Management: Theory and Practice, 4th edition, Bratton and Gold)