The major factors of reward systems
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Published: Mon, 5 Dec 2016
Yes, surely the reward system is a kind of major motivational factor adopted by any organization for its employees. Human Resource (HR) or employees of an organization are the key to unlock its potentials in the business environment. Performance management and reward system should be visible to employee, motivating them to excel the performance and achieving reward while reward system also need to be designed on the way that can lead to better performance.
Linkage of the reward system for the performance being shown under the achievement of organization values and culture is the most phenomenal result displayed and have achieved by the employee or organization. In fact, performance linked reward system is a cognitive approach of employee appraisal system.
Reward system and the performance itself is a vague topic, under the Human Resource Management (HRM) discipline which encompasses the Performance Management System (PMS) and its supportive Reward Management System (RMS) guided or controlled by adopted strategic management policies and procedures.
HRM is a dedicated section of management discipline which helps in Planning, organizing, staffing, leading and controlling of Human values and competencies required inside organization to achieve the set goal and objective. HRM is a sensitive and the core area of management for managing resources called “people” inside any kind of organization that focuses on their hiring/adoption/linkage, development, review of performance, compensation and achievement of overall organizational effectiveness with its goal.
PMS is an area inside HRM which helps setting and guiding the performance related and achieved value of their employees. Performance is typically an action that an entity displays for its system, where employee shows their dedication through their work for the organization. PMS handles major of HR tools like evaluating their personal competencies in work environment and most of the time concludes with the reward management. Performance management helps to determine the progressed value in context of set organization standards. Performance management generally compromises steps in the form of Performance measurement and Performance Appraisal. These both steps are the core guidelines that drive towards decision making about the reward and further Human Resource Development (HRD) roles.
In case of wrongly interpreted set of goals and metrics being linked under Performance Management system (PMS), it will lead to very hazardous situation among employees and hamper their native motivation guided by organization ethics and culture. PMS mostly revolves around the positive process for organization based:
Support and Reward’s.
These components help’s linking up of Organization goals and objectives to be achieved by managers through Human Resource Management (HRM), PMS and Reward based system.
Figure: Interlinking of Human resource management (HRM), Performance management system (PMS) and Reward management system (RMS) in an Organization.
Management compromises various sections that plots the organization nature and handles the co-relation between the sections to achieve the desired objective. Performance is there to be shown by People, either from lower level or top level position to achieve given set or work which could be time based or project based. Organization management portfolio then drives its hunt for the talent being displayed, sincereness shown in job platform, issue of commitment by their employee and will judge the outcomes in view of the organization development and compensate the Human Resources (HR) with the proper reward system.
Reward Management System (RMS) is a set of performance compensating tools, which normally is handled as the outcome or over the result of Performance Management System (PMS). Reward in simple terms is thought to be purely financial value but it could be something in non-financial aspect. In today’s management context with the competition between the organizations, the core practices and tools implemented by organization even in the field of performance management and motivating their employees can arise in potential productivity of their market value.
It’s necessary for the managers to implement timely oriented concept by reassessing their HR policies and guidelines to manage the workplace effort shown by employees. From management perspective evaluating the employee’s performance is a long process, guiding the employee toward the valuable motivating factor.
Each organization could have adopted their own kind of Performance Management System (PMS) including few different perspective of performance appraising techniques, monitoring guidelines, standards, reporting sets and performance measuring techniques. Performance measurement is normally held by obsessing following guidelines:
Commitment from Management.
The main theme behind enrolling of all these mentioned topics is to accept the dedication and the human competencies shown by the employee on his/her workplace. Performance is generally calculated through Appraisal process.
Appraisal process is the evaluation of an employee current and past performance compared to the organization set of standards. This is also known as the employee evaluation in terms of Quality, Quantity, Cost and time. Many modern organizations have the process of appraising using performance, attitude and knowledge gained. Normally, depending upon the type of business, appraisal process can be done on quarterly, half-yearly or yearly basis. Even management requires the time gap to measure the employee performance and calculating the difference. This calculated value normally leads toward rewards with feedbacks about performance noticed. Appraisal process mostly concentrates on the Job description based set of measuring criteria.
Frequently used appraisal methods among various organizations are listed below,
Graphic rating scale method
Alternation ranking method
Paired comparison method
Forced distribution method
Critical Incident method
Behaviourally anchored Rating Scales (BARS)
Management by Objectives (MBO) etc.
Having done with the appraising process the final marking or value for each employee is processed for the reward. Mostly these will be in the form of financial value but there are few more things that can be rewarded to an employee for his/her performance.
Reward basically is a positive value provided by the organization to the employee appreciating their work against the set of standards employed by the organization leader and managers. As talked before most of the psychological interpretation of reward will be toward the financial gain, but organization has lot of things to offer to their employees and guide them to their motive for organization value.
From some of the web based research it has also been seen that the employee of an organization is willing for ‘3R’ (Recognition, Reward, Remuneration) objective. These all values are types of reward itself and leading the way to achieve their motivation. Another, study has claimed that reward must be valued with appropriate return, timely or periodic evaluation and immediate response to the work performance noted by organization and providing them with 360degree feedback.
Moving along the reward context, some of the rewards can be even mandatory and optional depending on the amount and type with organizational situational impact. Reward may be tangible or intangible, monetary or non-monetary, performance based or recognition based and even capabilities based or policy based. With the organizational viewpoint even the employee own effort guide them toward the periodic height in management level and receiving the reward. Reward is there for employee with positive performance, employee receiving negative productivity may even be rewarded with organization based training and development scope.
Figure: employee effort generating Reward and valuable motivation.
An organization with time oriented management principles and Human Resource (HR) based strategy will be focusing on following positive theme based qualities for the adoption of reward system in their organization.
Organizational effectiveness improvement.
Growing Organizational culture.
Achievement of Integration.
Education and professional qualification of employee.
Supportive Management Control.
Improving skills and Team work.
Motivating the employees.
Manageable and controllable quality of Work.
Employee dedication and initiation.
Job difficulties and set of work.
Job based Research portfolio.
Company own benefit
Collective bargaining etc.
These qualitative approaches of reward system are changeable and implementable on any organization, which has theme of growing along the employee motivation. Major of them are not having fixed criteria or no standard criteria. Many organizations even are adapting the situational or contingent practice affected by management environment. Along with above mentioned qualities following core qualities are always expected from reward system.
Organizational cost effectiveness.
Employee betterment and development.
Competitive and commendable motive.
Acceptable to employee.
Guided by Organization standard.
Based on Performance measured.
Continuous improvement etc.
Reward system possessing above qualities and values does guide the organizational managers and leaders for motivational support to their employees. Reward systems as thought can be different in various organizations depending on their strategies and policies. With the vast agreeable arena of reward types the study focuses on the following 3 types mentioned.
Performance-based/Membership based reward.
Intrinsic rewards are originated from the employee Job position or through employee performance. Basically, this is termed as native reward to employee. Where employee major performance on the job role is evaluated and rewarded. This category of reward does not need to be periodically but need to be admired on the time itself by employee for achievement and growth. Some author has also termed this type as self-reward type or Informal reward given for addition to employee morale, motivation and self-respect. For example:
Accomplished professional profile with feedback.
Variety of Job performed.
Self-believe and value addition to organization.
Recognition for the position.
Learning and Growing morale.
Self decision and initiation taking ability etc.
Other types of rewards are extrinsic or non-native to employee such as the money based reward, promotion on duty/level etc. Extrinsic rewards are there because of the employee performance but is valued and provided based on the organization level and strategies. Mostly, organization managers and the immediate supervisor have final decision taking ability for such reward. In this category, employee performance measurement and appraisal feedback are the most important decision making factor.
Often, this category is periodic based from organization view and may comes once or twice in the year. Certain management environment based factors (PEST- Political, economical, social and technical) can play negative role on time. Such as, organization budgeting problem, moving of country in recession, transfer of employee into new department or branches etc can create problem on set rewarding standard being planned. Out of provided 3 types of reward last two falls under extrinsic category.
Financial reward a type of extrinsic reward is the most often used reward type in all kind of organization. Monetary value has been key motivating factor even for employee. There is even the psychological stand among the working people to aim the reward on the monetary scale. Some of the rewards of financial types are listed below:
Percentage increase in Base pay.
Growth in organization level affecting the salary.
Issuance of Company shares.
Paid vacation (single/family) /sick leave.
Discount and Membership with Organization clients.
Additional pay for specific achievement etc.
Financial rewards are directly linked with the employee financial earnings. These rewards are also determined after evaluation of the Performance against the standard set by the organization. Further, we can say financial reward is itself a kind of performance based reward. Measurement and appraisal done for performance checking and evaluation is the key to help the management leaders to make decision on rewarding their employee with financial benefits as a mean to motivate them. Even this category of reward has influences with external environment and also may not be exact periodic in nature.
Related to financial there is even non-financial reward type from organization to their employee. Non-financial reward is there to support employee recognition on the task being performed and adding the definite motive to employee themselves. This reward makes employee life in organization more attractive. Some of the examples of non-financial reward types are listed below:
Chosen lunch time.
Agreeable leave day from employee leave calendar.
Allotting of vehicle parking space.
Company business cards.
Free newspaper, telephones and electricity.
Allotment of company Quarter for living.
Allotment of single room for job.
Having own Secretary.
Issuance of Business titles.
Recognition from organization clients and using their benefit etc.
Non-financial reward is even a performance based selection for reward. This reward category could be governed or restricted by the organization HR policies and strategies adopted. Mostly, non financial reward is commenced together with financial reward or in addition to financial reward.
In similar financial reward category there is performance based and membership based reward type. It’s been clear that every reward either financial or non financial is based on the performance checkout. Normally, performance based is financial and sometime added through non financial means. Performance based reward is there for employee who has achieved the desired performance through their work and output as of organization desire.
Many international organizations have the performance based reward linked directly to the job position or gaining the job position. In the department like Sales and Marketing inside organization this category of reward is often based on the commission per piece of sold items or linked members. In other department apart from this the performance goes on long period such as performance being reviewed once or twice in year. Some of the examples of performance based reward plan are listed below:
Commission based piecework
Training and development.
Group / department bonus etc.
Another category under non financial reward type is membership based reward. This type of reward includes normally cost of living expenses. Such as benefit and salary growth per group condition, having rank in group or among member, team credentials with future potential, Labour market adjustment, sharing of profit, payment for hour not worked, job security etc.
United Kingdom (UK) based Organization named Comet (we live electrical) is being researched for the performance linked reward system under the IT-Sales assistant perspective.
Comet is one of the rapidly growing electrical items selling company in UK and is growing worldwide. The theme to choose this company is for the best manageable tactics and concerns with the time based reward and recognition this company is being achieving in daily used electrical products. Operating as part of KESA electrical the company is operating on around 12 countries. Company main business is focused on household supplies of electrical products and their services to the clients. Comet has adopted the trading principles for best price, best choice and best service.
IT-Sales assistant job profile is to assist the customer in choosing the products and displaying them by explaining the guidelines, using mode, updated information, value concern etc. Along with helping the customer choosing the product and providing them full details of the products the job major task is to perform sale and get commission based reward per item being sold. This strategy can be different in selling market again based on the product value itself, experience of the assistant in job profile, group or team based incentive allocation etc.
Linking the performance in sale to reward is challenging and diversified field. Sales assistant have to focus each client with their requirement and value of purchase they can afford. The personal attraction to customers, communication performed, product knowledge, effective time managing practice for each customer, performing under group theme and supervision etc., makes this role more attractive and professional in business.
The successful carrying of this role is normally financial value but even the positive gains are prestige in team, level achievement in group, financial gain as commission and pay for sale, receiving product itself from company side, advancement toward more training and development are the most common achievement that assistant can perceive.
Performance leads to motivation and finally to the productivity from employee. Accurate measurement and appraisal for key skills and display on the job aspect is very strict matter to guide the employee to the complete job satisfaction. Moving along various organization plans the company itself need to design and enforce the employee for getting their high thoughts and hard work for company value.
People or HR of the organizations is the most valuable asset and the process being implemented for their growth and advancement with skill, initiative, dedication and growth are worthy a form of reward. Organization should consider reward as the motivating factor to their employee rather than a financial burden.
Comet as the entity for electrical product has been in successful steps toward achieving the better management display. Employee management or Human Resource management (HRM) focused portfolio is the one of key figure to organization, and the company seems to admire it.
Reward management in organization not only will help the competitiveness among employee but also guides the organization culture along the adaption of timely changed and context management strategies.
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